2007 (4) TMI 49 - AT - Central Excise

Cenvat/Modvat Credit utilize for payment of duty on all their final product cleared to DTA has been disallowed by the lower authorities and accordingly demand for differential duty alongwith penalty Held that appellant eligible to utilize such credit for payment of duty

Summary

Issues:
1. Entitlement of a 100% Export Oriented Unit (EOU) to take Cenvat credit.
2. Disallowance of Cenvat credit by lower authorities.
3. Demand of differential duty and imposition of penalty.

Analysis:
1. The appellants became a 100% EOU on 19-11-2004, converting from a DTA unit. Before this date, they had taken 50% of the duty paid on their capital goods as Cenvat credit. The remaining 50% credit was taken during 2005-2006, amounting to Rs. 1,92,717/-. The lower authorities disallowed this credit, along with disallowing the utilization of capital goods credit and input-duty credit under the Cenvat Credit Rules for payment of duty on final products cleared to DTA, totaling Rs. 18,88,568/-. Additionally, a demand for differential duty of Rs. 16,44,454/- was made, with an equal penalty imposed by the authorities.

2. The appellants argued that post 6-9-2004, there was no restriction for EOUs to use Cenvat credit for duty payment on DTA clearances due to an amendment in Rule 17 of the Central Excise Rules, 2002. They also cited Notification No. 24/2003-C.E., which exempted export clearances of 100% EOUs from certain duties but did not exempt DTA clearances. The appellants claimed eligibility to use Cenvat credit for DTA clearances based on this notification. The authorities, however, disagreed, citing Rule 6 of the Cenvat Credit Rules, 2004. The appellants referred to a Tribunal decision supporting their entitlement to Cenvat credit as a 100% EOU before 6-9-2004.

3. The Tribunal found a prima facie case for the appellants post their conversion to EOU, stating that they were entitled to capital goods credit and input-duty credit since their DTA clearance was not duty-exempt. As such, the Tribunal granted waiver of pre-deposit and stay of recovery for the duty and penalty amounts, supporting the appellants' position based on the provisions of the relevant Notification and their eligibility to utilize Cenvat credit for duty payment on DTA clearances.

This detailed analysis of the judgment highlights the issues of entitlement to Cenvat credit, disallowance by lower authorities, and the subsequent demand for duty and penalty, culminating in the Tribunal's decision to grant relief to the appellants based on their eligibility post-conversion to a 100% EOU.